The American market represents 30% of total world economic activity, so it represents a real opportunity to start a business. However, the complex procedures of starting a business, employment, taxes and legal requirements can be a major obstacle for many who want to invest in the US market, especially since they also have to deal with understanding a foreign language.

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The United States of America – a land of opportunity or challenge?

The United States of America, with a population of 327 million people, is a huge consumer market, both for domestic and foreign investment, so it is not uncommon for the world’s largest economy to be attractive to many foreign entrepreneurs.

With its size, the United States of America is both a land of many opportunities, and a land of challenge, as becoming recognizable on the American market can be really hard. The whole country is represented by a federal system in which all 50 states are involved, which means that legal requirements differ from state to state, so they need to be well known if we have a desire to enter the US market.

Establishing a presence in the US market

Before we decide to invest in the US, we first need to focus on the establishment of the most suitable business entity. Like all other countries in the world, the United States has its own rules regarding the establishment of business entities, as well as the annual requirements for these entities to do business.

The most common types of businesses are corporations, limited liability companies (LLCs), and partnerships. Each of them has its advantages, and the choice depends primarily on legal and business factors; we must also pay attention to the fact that each type of business entity is formed in accordance with the laws of the state in which the entity is established.

All types of entities, except partnerships, require all documents to be filed with the government of the state. U.S. law treats these businesses as legal entities; in the event of insolvency, the company can thus declare bankruptcy without risking the personal property of the owners.

The most common types of entities doing business in the USA

Corporations

Many foreign companies in the US operate as corporations, with each state having its own rules. There are frequent cases where a corporation is formed in accordance with the laws of one state while having its registered office in another. Nonetheless, it makes the most sense to set up a company in the state in which you will be doing business. When doing that, it is necessary to submit the certificate of establishment to the Secretary of State in the chosen state.

The internal structure and bylaws of the corporation are similar in all states, but they can be adjusted in such a way that they also fit the needs of individual companies. Directors of an American corporation can be foreign nationals and must be natural persons and not foreign companies.

The most common form is a corporation C, which is taxed at the corporate income tax rate, separately from the owners of the company. That means that profits distributed among the owners are taxed twice; first on the level of companies and then on the level of owners. American companies can avoid this by setting up a corporation S, which is not available to foreign companies.

Branch

A foreign company may also choose to open a branch in the US, but this option is not recommendedunless an American lawyer specifically recommends it to us. In this case, the company is subject to taxation and organization as is the case for all U.S. companies.

Limited Liability Company (LLC)

The limited liability company is managed by the members who own the company. In this case, we can decide whether to be a company taxed as a corporation or the income will be passed on to members and taxed at member level. Members’ personal liability is limited to their investments.

Partnerships

Any foreign company may also choose to partner with another entity to do business together in the USA. In this case, it is recommended to have a written agreement, although not strictly necessary and binding. It can also be drawn up by oral agreement or without any documentation or filing with the state.

To identify a business and file taxes, each new business in the USA must obtain the Employer Identification Number (EIN) from the Internal Revenue Service.

The complex U.S. tax system is difficult for any foreign entrepreneur to understand

After thirty years, income tax legislation in the United States has changed, but with a complex system at the federal, state, and local levels, it is still difficult to understand for any foreign entrepreneur looking to enter the US market.

Tax reform has brought many changes, which also had consequences for global companies. Among the most important changes are:

  • reduced US corporate tax rate from 35% to 21% for all tax periods after 2017;
  • a Base Erosion and Anti-Abuse Tax (BEAT) has been introduced, which is intended for certain foreign payments by introducing an additional tax liabilities for legal entities;
  • the new financing rule rejects deductions for certain interest and royalties associated with payments to foreign persons.

American corporations are taxed on all the income they earn from doing business anywhere in the world. Foreign companies doing business in the US can experience ‘transfer prices‘, with which a foreign parent company can charge the branch higher prices for goods and services, for which high fines may also be prescribed.

The United States of America also has many tax contracts with other countries, which it would be smart to learn about before establishing a company. If the applicant’s home country has signed such a contract with the US, additional professional guidance is required.

However, all foreign individuals or companies doing business in the US are also required to pay the real-estate tax, if they have any real estate in the country, regardless of the residence of the taxpayer.

Legal requirements vary from country to country

It is important to know that some areas of law, such as patent and Copyright, are regulated exclusively by the federal law, while the laws governing employment relationships and sales transactions are primarily determined by individual states. Many other areas are governed by both federal and state law, so all businesses operating in the United States should be aware that they are also subject to these parallel legal systems, which, however, vary from state to state.

Contracts are regulated by the state law. If the parties enter into a written agreement, then this is at the disposal of the courts on the basis of the agreed agreement, the conduct of the parties, industrial customs and applicable laws. However, all 50 states have adopted some change of the Unified Commercial Code, which applies to any contract for the sale of goods in excess of $ 500. In this case, the courts examine the UCC with a view to addressing any gaps in the agreement.

All contracts must contain a clause on ‘choice of law‘, which stipulates that the laws of the country apply, and the ‘choice of place’ clause which specifies the state in which a lawsuit for performance of the contract may be filled in. It is important to know that United States of America has product liability laws, which are unique to the U.S. and also have strict intellectual property laws governing patents, copyrights, trademarks, and trade secrets.

Before starting a business, it is also necessary to thoroughly study business law. All foreign companies entering the U.S. market must accept US law related to the hiring and employment of workers. It is important to know that U.S. laws distinguish between ‘employees‘ and ‘independent contract workers‘. Employees are subject to tax requirements and are protected by federal labour law, while self-employed workers are not subject to these tax deductions, but are covered by many other labour laws, such as the federal minimum wage. All companies operating in the US must be aware of these differences and classify their employees accordingly.

Obtaining finance for doing business in the USA

It is difficult for a foreign entity to open a US bank account without the presence of the US entity and also the banks in the USA prefer to lend money to US companies rather than foreign entities. However, when a foreign company has been operating successfully in the United States for some time, this business often increases access to capital through American banks.

Immigration is governed by strict US laws

All foreigners coming to the US for work must obtain a permit in the form of a visa. US visa laws are complex and strict and are issued by either the US Embassy or a consulate in a foreign country. Such laws are federal, so visas are not regulated or issued by individual states, but in most cases require the approval of the US Office of Citizenship and Immigration.

Since there are several types of visas, it is important for foreigners to obtain the correct type of visa. There are many categories of employment for admission to the US as well as different categories for investors, business visitors, and employment in the form of sponsorship. For this reason, it is necessary to make sure that the visa category is correct in order to avoid mistakes when applying. Once we obtain a visa of a certain category, it is very important that we act within its provisions, otherwise forced emigration from the United States and refusal to re-enter the country can happen to us.

A quality and professional translation agency is important for smooth business in the USA

Establishing a company in the USA is already very complicated due to various laws and regulations, and an additional obstacle is certainly sometimes the lack of understanding of a foreign language.

If someone wants to do business abroad, knowing the language of the country is extremely important. As we have seen, ignorance of the language can lead to complications when choosing the wrong visa, let alone when we start delving into all the other details about understanding many legal acts or signing various contracts. In this case, professional help with translation is absolutely necessary if we want our business abroad to be successful.

If you have a desire to do business in the US someday or in the near future, you can contact us. Write to us at info@kjtranslations.com. Our professional  team will help you with translating all types of documents you need to do business in this end of the world.